Central and Eastern Europe: Inflation on the rise

July 18 2018

5 min

Manfred StamerSenior Economist for Emerging Europe and the Middle East

In June, y/y consumer price inflation increased in 10 out of the 11 EU member countries in the CEE region. The only exception was Lithuania where inflation edged down to 2.6% from 2.9% in May. In the Czech Republic (2.6%) and Hungary (3.1%), inflation came in above the Central Banks’ targets (2.0% and 3.0%, respectively) but remained within the ±1pp tolerance ranges around those targets, for now. In Romania, inflation remained elevated at 5.4% (unchanged from May) and has now exceeded the 3% ±1pp target range for six months in a row. Rising price pressures call for an end to the very loose monetary policy stance in the region in the next 12 months. The Czech Republic and Romania have already embarked on monetary tightening over the past year, the former appropriately but the latter too timidly in our view (for more details see WERO 4 July 2018). In Hungary, the key policy interest rate was again kept at 0.9% in June (unchanged since May 2016), however, the statements accompanying the decision gave some hints that the era of very loose monetary policy may end in the foreseeable future. In Poland (2.0% inflation in June) rate hikes are unlikely this year but should come next year.